Expert Real Estate Accounting Services For Investors

Depreciation allows investors to deduct the cost of the physical structure of a rental property (excluding land) over a specified period—27.5 years for residential and 39 years for commercial properties. This non-cash deduction reduces taxable income, thereby lowering tax liability. For example, a residential rental property valued at $275,000 (excluding land) would yield an annual depreciation deduction of $10,000, directly offsetting rental income.

A 1031 exchange, named after Section 1031 of the Internal Revenue Code, allows investors to defer paying capital gains taxes on the sale of an investment property by reinvesting the proceeds into a "like-kind" property of equal or greater value. This strategy enables the deferral of tax payments, facilitating portfolio growth and increased purchasing power. Strict timelines and rules govern 1031 exchanges, so professional guidance is essential.

Yes, short-term rentals have unique tax implications:

• Self-Employment Tax: If substantial services (e.g., cleaning, concierge services) are provided, income may be subject to self-employment tax.

• Occupancy Taxes: Many jurisdictions impose occupancy or lodging taxes on short-term rentals.

• Passive vs. Active Income: The IRS distinguishes between passive rental income and active business income, affecting tax treatment.

Proper classification and understanding of these factors are crucial for compliance and tax optimization.

Upon selling an investment property, capital gains taxes are due on the profit realized. Strategies to manage this tax include:

• Utilizing a 1031 Exchange: As previously mentioned, this defers taxes by reinvesting in like-kind property.

• Harvesting Losses: Offsetting gains with losses from other investments.

• Installment Sales: Spreading the gain over multiple years to potentially remain in lower tax brackets.

Each strategy has specific requirements and implications, warranting professional consultation.

The IRS allows certain investors to qualify as Real Estate Professionals, enabling them to:

• Deduct Unlimited Rental Losses: Offset losses against other active income without the typical passive activity loss limitations.

To qualify, one must:

• Spend More Than 50% of Working Hours in Real Estate Activities.

• Accumulate Over 750 Hours Annually in Real Estate Trades or Businesses.

Meticulous record-keeping is essential to substantiate this status.

Cost segregation involves identifying and reclassifying personal property assets to shorten depreciation schedules. By accelerating depreciation on certain components (e.g., fixtures, landscaping), investors can:

• Increase Early-Year Depreciation Deductions: Reducing taxable income in the initial years of ownership.

• Improve Cash Flow: By deferring tax liabilities.

This strategy is particularly beneficial for properties with significant non-structural components.

Yes, several tax credits may apply:

• Low-Income Housing Tax Credit (LIHTC): For developing affordable housing.

• Historic Rehabilitation Tax Credit: For restoring certified historic structures.

• Energy Efficiency Credits: For implementing qualifying energy-efficient systems.

Eligibility and application processes vary, so consulting with a tax professional is advisable.

The QBI deduction allows eligible taxpayers to deduct up to 20% of their qualified business income. For real estate investors, rental activities may qualify if they constitute a trade or business, considering factors like:

• Regularity and Continuity of Operations.

• Scope of Services Provided.

• Time Devoted to the Activity.

Proper assessment is necessary to determine eligibility.

Engaging a tax accountant with real estate expertise offers:

• In-Depth Knowledge: Understanding of industry-specific tax laws and regulations.

• Strategic Tax Planning: Identification of opportunities to minimize tax liabilities